DEFINITION of 'Basket'

A basket is a single unit of at least 15 stocks that are used in program trading, index fund management and currency portfolio management. Baskets are traded on both the NYSE and the CBOE for institutions and index arbitrageurs. Both instruments allow for the composite purchase of all of the stocks in the S&P 500 in a single trade.


After the stock market crash in 1987, baskets were created to better facilitate institutional trading on the index. A basket option is a type of financial derivative with underlying assets with a weighted sum and average. These assets have been grouped together in a basket. A sample of such is index options where in different stocks have been compiled together as an index. Instead of basing the price of the index on particular stocks, they are based on the average of the index’ underlying assets’ weighted sum and average.

Program Trading

Baskets with 15 or more stocks may be used for program trading. Program trading is used by hedge funds firms and other institutional investors looking for or using index arbitrage. Traders use program trading for two reasons. First, traders are allowed to trade a large number of stocks in a single time. Second, it lessens risk by flattening price discrepancies among different financial instruments within an index.

Index Funds

An index fund is also known as the index tracker. It is basically an exchange-traded fund (ETF) or a mutual fund with particular rules of construction that are followed no matter how the market conditions may be.

The most famous index fund is the S&P 500 Index Fund which is based on the constructed rules by S&P Dow Jones Indices. Equity index funds like the S&P 500 Index Fund includes batches of stocks with the same characteristics. These characteristics include value, size, profitability and/or the physical location of the companies involved.

Market Basket

The market basket covers consumer goods. These consumer goods baskets define the Consumer Price Index (CPI). This basket tracks the movement of consumer good prices. The assets placed in these baskets may be divided according to personal goods and services, leisure goods, housing, tobacco, household items, and/or alcoholic drinks.

Other baskets are used to manage and define the Producer Price Index (PPI) and different types of commodity price indices.

Currency Basket

A currency basket consists of particular currencies that differ in weight. A currency basket minimizes the risk of currency fluctuations by averaging the basket’s underlying currencies’ weights. Samples of currency baskets include the International Monetary Fund and European Currency Unit.

  1. Market Basket

    A subset of products or securities that is designed to mimic ...
  2. Basket Of Goods

    A relatively fixed set of consumer products and services valued ...
  3. Currency Basket

    A selected group of currencies in which the weighted average ...
  4. Burst Basket

    A burst basket refers to a particular type of stock transaction ...
  5. Basket Trade

    An order to buy or sell a group of securities simultaneously. ...
  6. Income Basket

    Categories for which various sources of income are allocated ...
Related Articles
  1. ETFs & Mutual Funds

    What is an Index?

    An index is a statistical means of calculating a change in an economy or market.
  2. Trading

    The Consumer Price Index

    Find out how this economic measure can help you make key financial decisions.
  3. Markets

    Purchasing Power Parity (PPP)

    Purchasing Power Parity (PPP) compares different countries' currencies through a market "basket of goods" approach. Two currencies are in PPP when a market basket of goods (taking into account ...
  4. ETFs & Mutual Funds

    The Pros and Cons of Indexes

    Learn about the advantages and disadvantages of stock indexes and passive index funds. Discover how there is an opportunity cost to using index funds.
  5. ETFs & Mutual Funds

    What are Index Funds?

    An index fund is a type of mutual fund that is tied to a broad stock index like the S&P 500 or the Dow Jones Industrial Average, instead of being handpicked and managed by an investment manager. ...
  6. ETFs & Mutual Funds

    The 4 Best U.S. Equity Index Mutual Funds

    Find out which four index mutual funds are among the best U.S. equities index mutual funds for core holdings in your investment portfolio.
  7. Investing

    The One ETF To Own The Top Internet Company Stocks

    Grab a pie of booming online businesses in one shot! Here is the one ETF that lets you own stock in the top Internet companies.
  8. ETFs & Mutual Funds

    3 Basket ETFs Your Broker Forgot to Mention

    Equity-based ETFs can be described as baskets of various stocks. Whether it is a broader market domestic fund, a sector ETF or an emerging markets equities play, the basket approach is used over ...
  9. Managing Wealth

    3 Index Funds with the Lowest Expense Ratios

    Read detailed information about index mutual funds with some of the lowest expense ratios in their categories, and learn about their pros and cons.
  10. ETFs & Mutual Funds

    An Introduction To Stock Market Indexes

    Investopedia explains the five most talked about indexes and what makes them all different.
  1. Who's in charge of managing exchange-traded funds?

    An exchange-traded fund (ETF) is a security that tracks an index but has the flexibility of trading like a stock. Just like ... Read Answer >>
  2. Does index trading increase market vulnerability?

    Learn how the rise in popularity of passive ETFs and mutual funds tracking indexes has increased the correlation among stocks, ... Read Answer >>
  3. Will the consumer price index (CPI) be updated or revised in the future?

    Learn about the consumer price index (CPI) and understand how its purpose and calculation make it necessary to continually ... Read Answer >>
  4. What's the difference between an index fund and an ETF?

    Learn about the difference between an index fund and an exchange-traded fund and how index fund investing compares to value ... Read Answer >>
  5. How can I buy an S&P 500 fund?

    In 1976, Vanguard introduced individual investors to the first mutual fund designed to mimic the S&P 500 Index. Today ... Read Answer >>
  6. What are the pros and cons of using the S&P 500 as a benchmark?

    Learn about the advantages and disadvantages of using the S&P 500 as a benchmark for portfolio performance, and understand ... Read Answer >>
Hot Definitions
  1. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
  2. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
  3. Brexit

    The Brexit, an abbreviation of "British exit" that mirrors the term Grexit, refers to the possibility of Britain's withdrawal ...
  4. Underweight

    1. A situation where a portfolio does not hold a sufficient amount of a particular security when compared to the security's ...
  5. Russell 3000 Index

    A market capitalization weighted equity index maintained by the Russell Investment Group that seeks to be a benchmark of ...
  6. Enterprise Value (EV)

    A measure of a company's value, often used as an alternative to straightforward market capitalization. Enterprise value is ...
Trading Center